Wednesday, April 24, 2013

If things go according to plan, LBS’s proposed divestment of a tract of land plus a 36 hole golf course in Zhuhai should be a sweet deal. This is because it is priced at rm644 million.

However shareholders may not enjoy an instant windfall because a large portion of the cash proceeds will be paid over four years.

It will receive a cash consideration of HK$500 million upon the completion of the divestment and HK$850 million in four tranches – HK$250 million at the end of 2014 and HK$200 million each in the following three years.

The company will also receive 225.56 million new shares in the HK listed Zhuhai Holdings worth HK$300 million. As a result, it will emerge as the third largest shareholder with a 16.78% stake.

The first payment of rm200 million will be utilised for general working capital and to reduce bank borrowings and settle expenses arising from the deal. As at Dec 31 2012 it had total bank borrowings of rm430 million.

The divestment will boost the company’s net tangible assets per share to rm1.70 from rm1.17 now while its net gearing ratio will drop to 0.37 times.

Its earnings in FY2013 should see a jump considering that the company will recognise an extraordinary profit of rm240 million from the deal.

The holding interest in Zhuhai Holdings, will allow LBS Bina to ride the development of the tract in Zhuhai.

LBS Bina will not only benefit from cash proceeds of rm538 million but also the upside potential of Zhuhai Holdings share price.